NCPA - National Center for Policy Analysis

Upward Mobility

May 28, 1996

In order to make class warfare arguments sound convincing, some politicians and sociologists would have us believe that most Americans are born into, live and die within certain economic groups. But climbing the economic ladder is a realizable American dream, not an American fantasy, according to most economists. Two of those economists, W. Michael Cox and Richard Alm, have come forth with a new study which demonstrates upward mobility in the U. S. They tracked a group of people -- including students, the retired, the employed, the unemployed and the laid-off -- from 1975 to 1991 to see what happened to their incomes.

In the first year, people in the bottom fifth (quintile) had an average income of just over $1,000. Seventeen years later, the average income of those people surged to $26,475 (all figures in constant 1993 dollars). Just 5 percent were still in the bottom income bracket in 1991. Sixty percent climbed all the way to the top 40 percent of all earners. Only 2.3 percent failed to increase their absolute level of income over those years. But two-thirds of the group had a higher income level in 1991 than the middle bracket had 17 years before. Sixty percent of those starting in the top income tier were able to stay there. But on average the income of the richest tier rose 8.6 percent -- to just under $50,000 a year. Only 4 percent fell from the top fifth to the bottom two quintiles. Almost everyone else got ahead as well. Three-fourths of those who started in the second-lowest quintile moved up at least one bracket -- with average income more than quadrupling. Of those who started in the middle quintile, about half advanced -- with a 71 percent gain. And seven out of ten who started in the second highest tier either stayed there or moved up -- with a 40 percent gain. The researchers reported that workers' incomes are growing a lot more over the course of their lives than they used to.

Given their initial lack of experience, workers' earnings start out low. Earnings peak when workers hit middle age, then begin to fall as retirement approaches. But peak earnings now occur later in life and reach a higher level. Two decades ago, the peak earning years were between 35 and 44. Now they occur ten years later. Twenty years ago, those in their peak earning years took home about twice as much as workers between the ages of 20 and 24. Now they earn more than three times as much. In the past, muscle power was an important factor in earnings, but that falters with age.

Today, people are paid for working smarter and doing so for a longer period of time.

Source: Perspective, "Class Warriors," Investor's Business Daily, May 28, 1996.

 

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